Wealthy investor Bill Ackman Recently Acquired One of My preferred Shares. I Believe This Move Showcased His Investment Genius.
Billionaire investor Bill Ackman, as per Forbes, boasts a net worth nine times over. He amassed his fortune by heading Pershing Square Capital, a hedge fund he established two decades prior. Ackman elevated his fame and pocketed substantial profits during the financial crisis by betting against bond insurer MBIA and shelling out to rescue mall operator General Growth Properties.
Ackman adheres to a focused investment strategy. His fund often holds less than 10 stocks, and when he takes a liking to a stock, he invests heavily. Recently, he invested heavily in Brookfield (BN 1.52%), a personal favorite and top holding of mine. Here's why I believe Ackman's investment in Brookfield is a wise decision with considerable financial rewards in store.
Putting faith in Brookfield
Ackman has acquired a considerable shareholding in Brookfield. Since June, his stake has widened five-fold to 22 million shares, currently valued at over $1.7 billion. This position accounts for approximately 13% of his hedge fund's total assets, making it the top holding.
Brookfield may not be well-known to most investors, but the Canadian multinational investment manager's business operations can appear intricate. It boasts three primary sectors:
- Asset management: Brookfield owns a 73% share in a leading alternate investment manager, and its asset management division has over $1 trillion in assets under management.
- Wealth solutions: Brookfield offers an array of insurance services, such as annuities, personal and commercial insurance, and life insurance.
- Operating businesses: Brookfield has substantial interests in renewable energy (Brookfield Renewable), infrastructure (Brookfield Infrastructure), business and industrial services (Brookfield Business), and property.
In many respects, Brookfield resembles a blend of Berkshire Hathaway and Blackstone. Similar to Berkshire, it offers insurance services and invests capital on behalf of investors in operating businesses (as well as funds). Meanwhile, it also holds a significant stake in a leading alternative asset manager, which rivals Blackstone in size and expertise.
Brookfield is led by a formidable CEO, Bruce Flatt, who has been hailed as the Canadian equivalent of Warren Buffett. Like Buffett, Flatt is a value investor with a remarkable track record in generating shareholder value. He joined the company in 1990 and assumed the CEO role in 2002. Over the ensuing 20 years, Brookfield delivered annualized total returns of 16%. This handily outperformed the S&P 500 and Berkshire Hathaway, which delivered annualized returns of about 11% during the same period.
Why Brookfield is an astute investment choice now
Flatt views Brookfield's brightest days yet as just around the corner. The company aims to achieve annualized returns of 15% or higher over the long term. It is well-positioned to accomplish this objective.
Several factors support this optimistic view. First, the company believes the stock is undervalued at its current price. Management estimates that the stock should trade around $84 per share based on the earnings capacity of its core businesses. This is significantly higher than its current share price of less than $60.
Furthermore, Brookfield has considerable embedded growth potential. It anticipates growing its earnings per share by more than 20% annually over the next five years. This is based on the anticipated expansion of its asset management and wealth solutions businesses, the carried interest in its investment funds, and its ability to effectively utilize the excess capital generated by its operations. Brookfield expects to generate over $47 billion in free cash flow, or $30 per share, over the next five years. This ample cash reserve will enable the company to allocate funds towards enhancing shareholder value.
This growth contributes to the company's belief that it can increase its underlying value to $176 per share by 2029. This would represent an annualized growth rate of 16% from its current estimated value and over 25% from its actual share price.
Ackman's bet on Brookfield is spot on
Brookfield and its subsidiaries feature prominently among my top holdings. I have been an investor in the company for over a decade, continually adding to my position. Like Flatt, I believe that Brookfield's best days are still in the pipeline, which is why I consider Ackman's investment decision a shrewd one. I anticipate this decision will yield substantial returns for Ackman and his investors.
Ackman's decision to invest heavily in Brookfield reflects his confidence in the company's potential financial rewards. With his recent acquisition of over $1.7 billion worth of Brookfield shares, he significantly boosted his hedge fund's holdings in the company, making it the top asset.
Brookfield's diverse business sectors, including asset management, wealth solutions, and operating businesses, have positioned it as a blend of companies like Berkshire Hathaway and Blackstone, renowned for generating shareholder value. Under the leadership of CEO Bruce Flatt, who resembles Warren Buffett in his value-investing approach, Brookfield has delivered impressive annualized returns of 16% over the past 20 years.
